Executive Summary
Henkel is indeed a very successful company, and their organization has achieved a considerable amount of growth in recent times, under Rorsted. However, some changes made within the firm could be classified as rather rash. Rorsted decided to expel a number of top-notch employees within the firm, on the basis on their unwillingness to change. This is a major, yet common obstacle to change, which can be worked around. He also introduced and desired to implement change at a rapid pace within Henkel, which may be a reason why these executives were not able to catch up. Henkel was also reluctant to target emerging markets, which they should have done, due to the business scope that exists. Instead, they chose to fight tooth and nail with brands in competitive markets. Therefore, through the course of this report, I put forward suitable models and theories that should have been implemented by Henkel to bring about a solution to these issues it is facing within its firm. These theories and models are trusted, and have been used extensively by several organizations across the globe to achieve a high level of success. First, I carried out a literature review on the relevant models and theories, and then critically analysed these problems, in the light of this model.
Case Brief
‘Henkel: Building A Winning Culture’ documents the history and the present standing of ‘Henkel’. This case study revolves around Kasper Rorsted, who was appointed the CEO of Henkel AG & Co KGaA (Henkel) in the year 2008. Rorsted assumed his position as the CEO of the firm, when things were going fairly smooth for Henkel – the sales were around 14 billion pounds, more than 8 percent from the previous year. However, the second half of the year 2008 saw the firm’s key markets experience a major setback, due to the global financial crisis. Consumers were opting for lower-priced options for Henkel products. Instead of decreasing prices, Henkel increased its prices to further to meet increasing raw material costs. This caused the company’s market standing to slip further. Rorsted then decided to transform Henkel into a performance-driven organization. He believed that remaining stagnant is not an option for the firm, but either moving up or down, which will make them relevant or irrelevant. He then set out to make four-year financial goals for sales growth, EPS, and EBIT margin. Rorsted believes that if their firm lacks the ability to win in a market or are unable to reach there in a reasonable period, they leave. They exited their home care and laundry business in China, which is an emerging economy with strong growth potential. Also, despite communication within the organization was fairly good, Henkel was unable to communicate its strategies with one of its country managers, who was fired without notice. Henkel had a culture of long employee tenures, where employees have been working with them for 20,30, and 40 years. However, this has changed in the past three years, as around 50 percent of the top executives within the company were replaced. Also, the young, fairly inexperienced people were given leadership posts within the organization. This might not be a good idea, as they lack the experience and foresight of an experienced executive. Henkel emphasizes that they have made most of the cuts at the top management, instead of the middle. Those who didn’t accept change in the company were made to leave. Henkel had also invested greatly in its Dial brand, which did not bring forth the returns they expected, causing the EBIT to dip by 0.2 percent from the year 2011 to 2012. Henkel also possesses a low bargaining power with retailers in emerging economies. While Henkel’s Performance system created a chance for employees to receive honest performance reviews, they would also decrease the morale of some. The next thing being that such a ranking system will make employees compete with each other, rather than work towards a specific goal.
Introduction To The Case Study
After analysing the case study thoroughly, several key problems were identified, which should be dealt with in an organization, so as to experience continual growth. There were six main problems identified, which pertained to the current working strategy and goals of Henkel. Listed below are the main problems found:
· Henkel is unable to negotiate with retailers in emerging countries, and leaves immediately when they do not achieve the level of success they want. This also shows that they do not consider the business climate of a place where they will carry out business.
· Henkel also invested a huge amount of resources in their Dial brand, which did not fare well in the market, bringing down their EBIT by 0.2 percent. This could possibly indicate their lack of research about market trends before investing in the market. Henkel invested most of their resources in highly competitive environments, where they were already top brands grabbing most of the market share.
· Henkel also dismissed a number of their senior executives and chose younger people within the company to occupy influential positions within the firm.
· The firm emphasized that the top management who weren’t willing to harness the change they introduced, were asked to leave. This resulted in the dismissal of nearly 50 percent of the top management.
· A country officer within the organization was suddenly dismissed, without any prior notice, which displays a lack of clarity in the beliefs of the firm, in terms of employee retention and relationship.
· Their newly-formulated performance ranking system might prove helpful for providing honest insight into the performance of an employee. However, assigning ranks to employees might actually harm the relationship among different employees. This is because cut-throat competition might surface, and also employees may use unethical means to boost their scores. Employees were once told that their performance was good, but now they’re told that their performance is not up to the mark, therefore, creating confusion.
Aim
Before beginning the analysis of the case study, it is crucial to define the aim of the research, along with the objectives.
“The aim of this research paper is to identify the issues prevalent within Henkel’s organizational structure, and propose suitable solutions”.
Problem Statement And Plan Of Analysis
The Blue Ocean Strategy came into being as a result of the beliefs of several businesses looking for ways to gain an edge over another. This strategy urges organizations to think beyond competition in the market, and rather just compete with themselves. The Blue Ocean strategy typically involves creating uncontested marketspace, which would in turn make competition irrelevant (Businessnewsdaily 2013). The Red Ocean strategy, contrary to the Blue Ocean Strategy, is concerned with competition in the existing marketspace, work against competition, and exploits existing demand. The Blue Ocean Strategy creates uncontested marketspace and generates new demand. This strategy helps in aligning the entire system of an organization’s activities towards differentiation as well as low-cost (Kim and Mauborgne 2004). Belbin’s Team Roles is an effective model that can be used to create a balance between the members of a team. Teams function best when there is a correct balance of their primary roles, and when team members understand their roles, work on their strengths, and handle weaknesses. Belbin’s Team Roles model suggests that achieving the right balance among team members involves choosing a co-rodinator or shaper, one to instil and stimulate ides, an evaluator to maintain clarity and honesty, and implementers to carry forward the plans (Changingminds n.d.). Six Sigma is another approach that is not only geared towards improving quality within the organization, but also offers support to maintain quality. Six Sigma DMAIC (Define, Measure, Analyse, Improve, and Control) methodology may be regarded as a roadmap for solving problems and improving processes or products. The first phase ‘Define’ revolves around defining the goals and deliverables for a project. The ‘Measure’ phase is used for determining the present performance and quantifies the issue. The ‘Analyse’ phase is concerned with analysing and finding the root cause behind the defects. The ‘Improve’ phase, as the name suggests, is concerned with improving the process by getting rid of defects. The final phase ‘Control’ is concerned with controlling future process performance (Isixsigma n.d.). The ‘Control’ phase is concerned with retaining the gains made during the improve phase i.e. it is concerned with maintaining change (Brighthub n.d.). SWOT analysis is an assessment technique that is highly effective and helps in identifying the negatives as well as positives inside the organization and the external environment. The full form of SWOT is Strengths, Weakness, Opportunity, and Threat. The SWOT analysis might help in determining the existence of a new opportunity, while a potential threat could shut the path that was once in existence. The SWOT analysis is divided into two parts – internal and external. Internal focuses on the strengths and weaknesses, while external deals with opportunities and threats. The SWOT analysis can be developed by a small group or an individual. However, the best thing would be to bring together as many stakeholders as possible (Dyson 2004). Root Cause Analysis is a technique that is used for addressing a problem in a manner that the root cause is found. It may be used for correcting or getting rid of the cause, and prevent the issue from recurring in the future. For any given problem, once the root cause is identified and fixed, it will never return again. Every problem can be called an opportunity, owing to the fact that it can communicate a story about the reason behind its occurrence. It is essential that every individual within an organization should play an active role in improving quality. The main problem ought to be understood prior to taking action. In simpler terms, root cause analysis puts forward a question, asking why the issue/problem occurred, and then moving on to find out why that happened, till the reason behind the failed element is found out (Af n.d.). Theory of Constraints (TOC) is a model that is applied to working and bettering an organization. It comprises problem-solving and decision-making tools, known as thinking processes (TP). This model is applied to provide answers to three main questions, which are essential to any ongoing improvement strategy. The first question asks what needs to be changed, while the second question asks to what to change. The third question asks how to bring about the change. TOC is concerned with finding out ways to deal with resistance to change, which is a common problem in any new change program (Goldratt 2009). It has been observed that nearly 70 percent of plans that focus on change experience failure. Every business change is diverse in nature, but every change is a variant of these two archetypes, which include Theory O and Theory E. Theory O is based on the principle that if a firm focuses only on their stock, it might their organization. The goal here is to improve corporate culture as well as human capability, improving their relationship with their workers. On the other hand, Theory E follows a hard approach, wherein change makes use of economic incentives, layoffs are drastic, and downsizing occurs (Maaw 2003).
Through the course of this paper, these above-mentioned models will be utilized to understand the reasons behind these problems, and find an appropriate solution for the same.
Analysis And Findings
Reluctance to release unique products
The first thing that shall be analysed would be Henkel’s reluctance to pursue different markets. Henkel has remained restricted to household products, and has been hesitant to innovate. If Henkel is unable to compete in a market in a given period of time, they make their way out of it. They were not able to see a growth strategy in China for their laundry and home care products, and hence, quit, working only on cosmetics and adhesives (Simons and Kindred 2012). The Blue Ocean Strategy recommends avoiding competition in a market, which is exactly what Henkel is doing. This strategy also suggests that innovative products/services should be offered, which have not been offered before, so that a unique position is gained for the company (Businessnewsdaily 2013). Henkel did not try creating an uncompetitive market space, but instead chose to compete against top-brands. Also, the SWOT analysis reveals that the competition in emerging markets for specific products is fairly high. Though Henkel’s strength is the number of brands it possesses, its weakness lies in the fact that it moves out of a market quickly.
Firing Employees who do not conform to change
Henkel fired a number of top-notch executives for not willing to conform to their change. A country head was dismissed without any prior notice, for not conforming to the change they prescribed. Beer and Nohria’s model explains that such an approach is similar to the Theory E. Theory E change strategies are those that gain all the attention in the market. This approach is classified as ‘hard’, and the only major concern is the shareholder value. The only form of motivation is financial incentives. Other changes that follow include drastic layoffs, downsizing, and restructuring (Maww n.d.). This is exactly what is being done by Henkel, where they are dramatically cutting costs and eliminating top executives. The firm admits to having fired more from the top rather than the middle management. The Theory of Constraints points to resistance to change being the most common reason behind failed changes within an organization (Goldratt 2009). Instead of working around the problem as to why employees are unwilling to embrace change, Henkel fired the employees. The ‘Analyse’ phase of the Six Sigma model also focuses on finding faults and correcting them, but this has not been done by Henkel.